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Reproduced by kind permission of Guardian Newspapers Limited

Hot talk but chilly prospects

Companies based in exotic spots have launched an email offensive to convince the unsuspecting that there's easy money to be made on the markets. But, warns Tony Levene, it involves heavy gambling with your savings and you stand to lose the lot

Tony Levene
Saturday November 9, 2002
The Guardian

Huge numbers of emails offering "A special report on the euro" are hitting inboxes every day. It sounds like an innocuous offer of information that may help with planning next year's trip to Tuscany. But it could be a quick route to gambling your savings away.

Those who reply could end up receiving high pressure sales calls from exotic locations including Costa Rica, the British Virgin Islands and Florida.

The callers claim to have strategies to multiply investor's money tenfold and more in a month. But such gains involve taking huge bets against a multi-billion market and involve very high prospects of total loss.

Jobs & Money has experienced two approaches.

One claimed it was regulated by credit card group Mastercard; the second has had run-ins with watchdogs in North America.

International Currency Advisers has a corporate headquarters in the British Virgin Islands, an offshore tax haven, with its operations working out of Costa Rica, and boasts a "technology" office in London.

After an "adviser" read out a risk statement, we were passed to Anthony Garcia, a "trader". He said: "50% to 70% of bank profits come from foreign exchange trading." But this is not true.

He added: "I've had affiliations with Royal Bank of Scotland." But when pressed, he could not name any.

Garcia's big sales line was a "200% to 300% gain on your money in the next 30 to 60 days." How would this amazing return be achieved?

"Everything's boiling over," he told us two weeks ago. "I see the euro going to $1.07 and then $1.16- all the ingredients of profits potential," he said. So far, it has traded around $1.00.

How these gains would occur was less clear - Garcia talked about options, positions, deltas, straddles and being on both sides of the market at once.

But more clearly, he stated "70% of individuals investing in options win" although when asked he could not recall the source of this statement.

The idea was to invest the minimum $10,000 (around 6,400) which would be "leveraged" to equal $1.25m. So each one cent move in the direction of the option would bring $12,500. Garcia claims the euro will soar because of "the forthcoming war in Iraq."

But the euro would first have to gain three cents during the option's lifespan to make any money at all.

Garcia eventually disclosed his firm would take 25% from my money as commission.

We declined to invest $10,000. A week later, Garcia phoned again and offered to cut the minimum to $5,000.

When asked about regulation in Costa Rica he replied: "We're regulated by Mastercard, Interpol and the FBI."

Mastercard says: "This is nonsense. We do credit cards. Interpol chases criminals while the FBI is only involved in the US."

But Mr Garcia says: "We're not a scam operation. We're well established. We've been a year in Costa Rica."

In Florida, World Market Advisors also offers a free euro report. It claimed late last week that the euro would soar against the dollar because US interest rates are falling.

"Markets are trending upwards. You should pile into the market. If you invest 10,000 now you're looking at 135,000 in cash in 30 to 60 days or less," says James Tressell, a Liverpudlian, now working in Miami.

In fact Tressell was so keen to help us gain this cash, that he phoned nine times in two hours one day last week.

His colleague, Tom Yoos, warned against dealing with Costa Rican firms and confirmed the company was registered with the Commodity Futures and Trading Commission in the US.

This ensures firms have capital to meet liabilities but does not insist on suitability for clients or best advice.

Yoos said the "choice is between a gain of 195,000 or a 6,000 loss. We're 100 times better than a Merrill Lynch account."

Yoos said his commission was 20%. But he was unable to name the owners of the firm he worked for. Nor could he name the owners or managers of Universal Options, the firm with which clients sign a dealing agreement. But Universal and its owners are known to the authorities in both the US and Canada.

Universal Options is owned by the Universal Commodity Corporation, which, in turn is linked with Universal Financial Holding Corporation. All share an address in North Miami Beach.

Last August, the Saskatchewan Securities Commission in Canada issued an order against Universal Financial, 13 individuals, and four other companies, ordering "trading in all securities, futures and other contracts should cease forthwith".

The order was made "in the public interest."

In December, 2001, Universal Financial and Andrew Stern, its "principal and president" were each fined $50,000 by the US-based National Futures Association, following rule violations.

The complaint alleged that brokers associated with Universal and Stern made "misleading and deceptive sales solicitations and used deceptive, misleading and unbal anced promotional material." Universal was liable for these violations, the NFA added.

In June 1997, the NFA fined Universal, Stern and Carl Saathoff $200,000 for "deceptive and misleading promotion material."

One month before, a broker associated with Universal was fined $5,000 after complaints of "deceptive and misleading" solicitations.

Firms involved in currency options do issue risk warnings on their websites. But the sales patter is so positive that it is easy to forget that you cold lose all your money in double-quick time.

None is regulated by the Financial Services Authority.

What to watch for

Share pushers and currency dealers from overseas can be persistent - and they may not always tell the truth. So, before parting with any money, compare what you are being promised against our checklist, compiled with help from the Financial Services Authority.

Do you know with whom you are dealing?

Offshore firms often use phone numbers in the UK or other better regulated countries. But your phone call may be automatically diverted.

Is the firm regulated by the FSA?

Check companies on the FSA website (http://www.fsa.gov.uk)/ or phone 0845 606 1234. If they are not listed, then you are not covered for compensation.

Are you being promised greater than average gains?

Anyone promising huge returns must be treated with utmost suspicion. Ask why are they offering this opportnity to others when they could clean up themselves. If the deal sounds too good to be true, it's a scam.

Do you understand what they are selling?

The offshore patter from unauthorised companies often focuses on difficult to decipher technology or hard to comprehend options and derivatives strategies. They know you will not want to appear stupid but you should keep saying "I haven't a clue what you are talking about."

Ask where they found your name and phone number from

This may help in tracing your money if you lose it.

Are they eager for you to sign a bank transfer? Do they hassle you several times a day?

Don't hand over your money immediately - insist on time to think about the offer. And no matter what the pressure, don't agree to anything unless you are happy with everything.


Guardian Unlimited Guardian Newspapers Limited 2002

Link to site: http://money.guardian.co.uk